What is Moody's?

Moody’s Investors Service is a credit ranking agency that offers Insurance Financial Strength Ratings, which help inform Policygenius’ best company recommendations.

Rebecca Shoenthal author photoAmanda Shih author photo

By

Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

&Amanda Shih

Amanda Shih

Editor & Licensed Life Insurance Expert

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

Updated|2 min read

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At Policygenius, we use several factors — including third-party rating groups — to determine our best life insurance company recommendations. Moody’s Investors Service, founded in 1909, provides ratings and reviews of Insurance Financial Strength, the ability of insurance carriers to pay claims. 

Here’s how Moody’s ratings work and how you can use them to help choose your life insurance provider.

Key takeaways

  • Moody’s rates companies’ financial strength based on their ability to repay short and long-term debts.

  • Short-term ratings range from P-1 to NP (best to worst) and Aaa to C for long-term ratings.

  • Policygenius uses Moody’s ratings to inform our editorially independent reviews of life insurance companies.

What does Moody’s do and why do their ratings matter?

Along with Standard & Poor’s and Fitch Group, Moody’s is among the largest credit ratings agencies in the world, and a respected source for analysis of the financial strength of banks, money markets, bond funds, and insurance companies. The U.S. government also uses it for regulatory purposes.

Moody’s ratings help investors — and anyone trusting a life insurer with their family’s financial protection — judge the stability and creditworthiness of financial institutions.

Why is a Moody’s rating important for life insurance companies?

Once you’ve determined the type of life insurance policy you need and compared premiums, it can still be difficult to decide which company is best for you.

That's why you should also look at the financial stability of a life insurance carrier, to ensure that your family will receive a death benefit after you’re gone. 

Moody’s rates carriers according to a detailed "creditworthiness scale." Basically, that means they weigh the outstanding debts and other financial risks of national life insurance companies. Knowing a company’s Moody’s ratings, along with other third-party credit ratings, can help you confirm an insurer’s financial reliability — and that can help you decide what carrier to choose.

How does Moody’s rating scale work?

Moody’s uses a multi-pronged rating system to determine a carrier's financial strength.

The ratings process includes four steps: [1]

  1. Company applies for a rating and Moody’s assigns an analytical team to the company

  2. Company’s management presents company information to Moody’s analytical team 

  3. Analytical team submits proposed rating to committee for a review and approval vote to ensure integrity and consistency

  4. Rating is shared with the company and in a press release by Moody’s

The ratings review accounts for an insurance company's short- and long-term financial risk.

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Moody’s short-term rating scale

Moody’s short-term ratings are based on an insurance company’s ability to repay short-term debt obligations. Moody’s defines "short-term debts" as obligations due for repayment in under one year.

Moody's designation

Ability to repay short-term debts

P-1                

Prime-1: superior                 

P-2                

Prime-2: strong                   

P-3                

Prime-3: acceptable               

NP                 

Not Prime                         

Moody’s long-term rating scale

Moody’s long-term ratings are based on an insurance company’s credit risk of fixed-income obligations. These ratings reflect the possibility that a life insurance benefit payout may or may not be honored as promised.

Moody's designation

Ability to repay long-term obligations                                                                        

Aaa                

Highest quality, minimal risk                                                                                 

Aa                 

High quality, very low credit risk                                                                            

A                  

Upper-medium-grade, subject to low credit risk                                                                

Baa                

Medium-grade, moderate credit risk, may possess speculative elements                                          

Ba                 

Substantial credit risk, with speculative elements                                                            

B                  

High credit risk, considered speculative                                                                      

Caa                

Very high credit risk, poor standing                                                                          

Ca                 

In or very near default, highly speculative, some prospect of recovery in principal and interest               

C                  

Typically in default, with little prospect for recovery of principal and interest

Long-term ratings may come with a 1, 2, or 3 added to the letter rating, which indicates how highly within its letter category a company ranks. A company rated Baa1 is less risky than one rated Baa3.

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How Policygenius uses Moody’s ratings

Policygenius takes a comprehensive approach to determine the best life insurance companies available. We don't get paid for reviews and evaluate an extensive rubric of criteria to come up with robust, unbiased reviews to match you with the right life insurance carrier.

Moody’s ratings factor into our Financial Confidence category: consumer confidence based on scores from major financial rating institutions. We normalize ratings from Moody’s, Standard & Poor’s, and A.M. Best, to give companies a score out of 10.

To learn more, you can compare our life insurance company reviews or read our complete ratings methodology.

Frequently asked questions

What is Moody’s ratings scale?

Moody’s ratings scale for life insurance companies ranges from P-1 to NP (best to worst) for short-term debts and Aaa to C for long-term debts.

How does Moody’s set its ratings?

An analytical team assesses a company’s creditworthiness and assigns a rating, which is approved by a review committee to ensure integrity and consistency across ratings.

How can a Moody’s rating help me choose a life insurance company?

Moody’s ratings indicate how much you can trust a company to pay its debts — like the payout on your life insurance policy. Choosing a financially stable insurer can provide peace of mind that your family will receive the financial protection you paid for.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of our

editorial standards.
  1. Moody's

    . "

    Rating Scale and Definitions

    ." Accessed December 01, 2021.

Authors

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

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Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Editor & Licensed Life Insurance Expert

Amanda Shih

Editor & Licensed Life Insurance Expert

gray twitter icon linkgray linkedin icon link

Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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